Eligibility for Foreign Tax Credits

At issue was whether the taxpayer, who filed both Canadian and US tax returns by reason of being a Canadian resident and US citizen, was entitled to claim a foreign tax credit in respect of Canadian sources income.

ANALYSIS

Income Tax Actsection 126 permits a foreign tax deduction in certain circumstances when calculating Canadian tax payable. Specifically, subsection 126(1) allows a deduction from TAX otherwise payable (not income) for part of any non-business-income tax paid by the taxpayer, for that year, to the government of a country other than Canada.

Subsection 126(7) defines “non-business-income tax” for purposes of section 126 as an amount actually paid for a taxation year to the government of a country other than Canada that is the portion of any income or profit tax so paid that:

was not included in computing that taxpayers business-income tax for the year in respect of any business carried on by the taxpayer in any country other than Canada;

that was not deductible (whether deducted or not) pursuant to subsection 20(11);

that was not deducted pursuant to subsection 20(12); and

does not include a tax or a portion thereof that fits under paragraphs (c.1) to (i).

The Court also referred to the Canada-US Income Tax Convention which provides specific rules for taxpayers who are citizens of the US and residents of Canada.

Here the taxpayer, in her US tax return calculated US tax but this was reduced to nil after deduction of a foreign tax credit and she was also refunded income tax that was withheld on a distribution (paras 6-7). She filed her US tax return as if she had filed tax on the income in Canada.

The Court noted that if she would have paid tax to the US government, then she would have been entitled to a foreign tax credit up to the amount of tax so paid (para 13). Where, however, not tax is payable in the US or paid in the US, it follows (one would think logically) that no tax credit would be available in Canada. The tax payable is not the tax that is calculated as due but rather the amount that, by operation of US tax legislation, is ultimately imposed on a taxpayer – Zhang v. The Queen, 2007 TCC 634, aff’d 2008 FCA 198.

Extension of Time to Appeal to Tax Court

The taxpayers were reassessed to deny their claim for the principal residence exemption.

At issue was whether the TCC should grant an extension of time to file a notice of appeal pursuant to S 167 of the Income Tax Act, and whether two of them should be granted an extension of time to file a Notice of Objection with the Minister pursuant to subsection 166.1(1).

ANALYSIS

Extension of time to file Notice of Appeal

Subsection 169(1) of the Income Tax Act permits a taxpayer who has filed a Notice of Objection to appeal to the Tax Court of Canada by filing a Notice of Appeal within 90 days of either the Minister sending the notice of confirmation to the taxpayer or after the Notice of Objection has been served on the Minister.

Where a taxpayer misses this deadline, an application for extension of time may be brought pursuant to ITA s 167 and the court may grant an order extending the time:

the application to extend time is brought within one year after the expiry of the original time period;

the taxpayer demonstrates that the taxpayer, during the regular time period, EITHER was unable to act or instruct another to act OR had a bona fide intention to appeal;

It would be just and equitable to grant the application in light of the circumstances;

The application was made as soon as circumstances permitted, and

There are reasonable grounds for the appeal.

However, an unsupported allegation that the taxpayer did not receive the notice of confirmation is insufficient where the address the notice was mailed to was that of the taxpayer’s principal residence, the taxpayer’s accountant was copied on the letter and took action consistent with being aware of the confirmation.

Extension of time to file Notice of Objection

Subsection 165(1) provides a taxpayer the right to file a Notice of Objection, meeting certain criteria, within certain time periods:

For Individuals other than trusts or graduated estate trusts, within the latter of EITHER one year after the taxpayer’s filing due-date for the year OR 90 days after the day the Notice of Assessment is sent; or

For all other taxpayers, 90 days after the day the Notice of Assessment is sent.

Where a taxpayer misses the applicable deadline, an application can be made to the:

Minister for an extension of time (s 166.1(1)) within one year after the expiry of the original period; and

TCC for an order to extend the time, after an application is made under s 166.1, within 90 days after the latter of either the minister refusing the application or 90 days after the service of the application on the Minister.

However, uncorroborated claims that a taxpayer’s representative informed the taxpayer that Notice of Objection had been filed, or where there was no evidence that the taxpayer filed an application on the Minister to extend the time under 166.1, will not result in the Court granting the application.

Every year I make this primer, an Introduction to Tax Policy Theory, available to my tax policy students (and otherwise send it whenever I'm asked for an overview look at tax policy basics), so I decided to post it on SSRN. It is not a published piece but may be some day. Here is the description:Taxation […]